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Coin sizes and payments in commodity money systems

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  • Angela Redish
  • Warren E. Weber

Abstract

Contemporaries, and economic historians, have noted several features of medieval and early modern European monetary systems that are hard to analyze using models of centralized exchange. For example, contemporaries complained of recurrent shortages of small change and argued that an abundance/dearth of money had real effects on exchange. To confront these facts, we build a random matching monetary model with two indivisible coins with different intrinsic values. The model shows that small change shortages can exist in the sense that adding small coins to an economy with only large coins is welfare improving. This effect is amplified by increases in trading opportunities. Further, changes in the quantity of monetary metals affect the real economy and the amount of exchange as well as the optimal denomination size. Finally, the model shows that replacing full-bodied small coins with tokens is not necessarily welfare improving.

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Bibliographic Info

Paper provided by Federal Reserve Bank of Minneapolis in its series Staff Report with number 416.

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Date of creation: 2008
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Handle: RePEc:fip:fedmsr:416

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Keywords: Coinage;

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References

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  1. Francois R. Velde & Warren E. Weber, 2000. "A Model of Bimetallism," Journal of Political Economy, University of Chicago Press, vol. 108(6), pages 1210-1234, December.
  2. Francois R. Velde & Warren E. Weber & Randall Wright, 1997. "A model of commodity money, with applications to Gresham's Law and the debasement puzzle," Working Paper Series, Macroeconomic Issues WP-97-12, Federal Reserve Bank of Chicago.
  3. Vincent Bignon & Richard Dutu, 2006. "Moneychangers and Commodity Money," EconomiX Working Papers 2006-9, University of Paris West - Nanterre la Défense, EconomiX.
  4. Redish,Angela, 2000. "Bimetallism," Cambridge Books, Cambridge University Press, number 9780521570916, November.
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Cited by:
  1. Williamson, Stephen & Wright, Randall, 2010. "New Monetarist Economics: Models," Handbook of Monetary Economics, in: Benjamin M. Friedman & Michael Woodford (ed.), Handbook of Monetary Economics, edition 1, volume 3, chapter 2, pages 25-96 Elsevier.
  2. Angela Redish & Warren E. Weber, 2011. "A model of commodity money with minting and melting," Staff Report 460, Federal Reserve Bank of Minneapolis.
  3. Farley Grubb, 2012. "Chronic Specie Scarcity and Efficient Barter: The Problem of Maintaining an Outside Money Supply in British Colonial America," NBER Working Papers 18099, National Bureau of Economic Research, Inc.

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